01 Jul Does the employer mandate matter?

Originally posted June 27, 2014 by Kathryn Mayer on www.benefitspro.com.

Over the past few years, the Patient Protection and Affordable Care Act has had no shortage of scrutiny.

But the employer mandate, perhaps more than any provision, has become a lightning rod for criticism of the law. The provision — once thought of as a key, if not essential, part of PPACA — since its inception has been vehemently attacked by employer groups and business owners. Originally scheduled to go into effect in 2014, the mandate has twice been delayed by the administration, which says it needs more time to implement the provision.

Under the latest delay, announced in February of this year, employers with between 50 and 99 employees have until January 2016 to offer health insurance or pay a fine, and employers with more than 100 employees must offer insurance or pay a fine of $2,000 per worker by January 2015. Companies with fewer than 50 employees are exempt.

Attention to the mandate hit a new high at the Benefits Selling Expo back in April, when Robert Gibbs predicted during a keynote address that the mandate would never be put into effect.

“I don’t think the employer mandate will go into effect. It’s a small part of the law. I think it will be one of the first things to go,” he said to a notably surprised audience.

Gibbs, a former longtime advisor to President Barack Obama, noted there aren’t many employers who fall into the mandate window. He said the delays point to the fact that the mandate “will never happen.”

Media outlets quickly ran with the news, prompting the White House to respond.

House Minority Leader Nancy Pelosi, D-Calif., maintained that PPACA’s employer mandate will — and must — remain part of the law.

Appearing on CNN’s “State of the Union,” Pelosi said that the “employer mandate, the individual mandate, are an integral part” of PPACA, “This is an initiative that has strong pillars in it that relate to each other.”

Even if it’s nothing more than political fodder over the often controversial law, the latest debate raises the question: Will PPACA’s employer mandate really go into effect? And perhaps more importantly, does it matter?

Mandate doesn’t matter

Experts at the Urban Institute researched this very idea. Their overall consensus? Eliminating the mandate “certainly wouldn’t spell disaster.”

Overall, the Washington, D.C., based think tank said, eliminating the mandate would have little effect on employer-sponsored coverage, would “remove labor market distortions” in the law, and might even squash some of the political opposition.

First of all, it would “scarcely affect the total number of Americans who have coverage.” Even without the mandate, 250.9 million people will have coverage, compared to 251.1 million — only 200,000 more — if the mandate remains intact, researchers said.

“So many people have coverage through their employer now, and no one is requiring them to do,” says Linda Blumberg, a health economist and senior fellow at The Urban Institute. “But there are still incentives for [employers] to do it. It’s a way for them to retain and attract the kinds of workers they want. What we did [in our report] was analyze the tradeoff — firm by firm, worker by worker — and look at how employers make these decisions. And for most of them, they will continue to do this to keep employees happy.”

Frankly, Blumberg says, the employer mandate isn’t central to PPACA’s overarching goals.

“The employer mandate isn’t what’s driving the increase of health insurancecoverage; the individual mandate is,” she says. “And also the subsidies. You don’t want to think about the employer and the individual mandate in the same breath. They are very different. One is really essential to it achieving its goal, and one really isn’t.”

Another advantage of eliminating the employer mandate is simply to please employers. Groups such as the U.S. Chamber of Commerce and the National Retail Federation have been asking for the mandate to be repealed all along. They’ve argued over detrimental effects: that numerous companies would downsize or cut hours for their employees to dodge the rule. So not only will killing the mandate subdue those concerns, but, Blumberg says, it could get employers to focus on more important issues — and potentially get them on board with supporting the controversial law.

By taking away those requirements for employers, Blumberg says, “you lessen, significantly, the political resistance to the law from employers.”

“If we could get employers more involved with making sure that the workers have coverage, instead of them worrying about how to avoid [the mandate] or being angry about a requirement that might not even affect them, this could be more successful,” she says. “You take away that friction that the employer community has felt, and I think that’s an advantage for broad-based implementation of the law.”

The mandate matters

Still, there are reasons to be cautious about repealing the mandate. One significant one is funding.

By eliminating the employer penalties and the expenses for employee subsidies, the repeal would open a giant hole in PPACA’s financing. The Congressional Budget Office has estimated that gap at $140 billion through 2023, while the Urban Institute places it lower, at about $46 billion.

“What we found was smaller than what the CBO estimated, but still, penalties make the revenue,” Blumberg says. “That helps support the cost of the program. I would expect it would have to be replaced by another revenue source.”

Of course, there is the issue of what’s best for employees and employers. Without the requirement of offering employees coverage, will employers simply dump their employees into the exchanges? That’s the fear — one that’s been supported by various studies and reports.

The CBO has predicted that as many as 1 million more people may be uninsured in the absence of the employer mandate, though others argue the number will be much smaller. And those dropped from employer-sponsored coverage would likely face paying more for coverage on the exchanges, some argue.

Tim Jost, a professor at Washington and Lee Law School who supports the law, outlined some issues in a post in Health Affairs.

“The end of the employer mandate, and the reporting requirements that accompany it, would also make the exchanges’ job of determining eligibility for premium tax credits and for exemptions from the individual mandate more difficult,” Jost said. “Eligibility for tax credits and for the individual mandate exemption turns on employee coverage offers and enrollment.  If employer reporting were eliminated together with the mandate, precise verification of whether an employee is eligible for coverage and the extent and cost of that coverage might not be possible.”

Killing the mandate, too, many industry insiders say, wouldn’t quash political wrangling. Killing it may bring up legal questions—the government could face lawsuits over not implementing the law, for example–and it might also be an admission from the administration that Obamacare is failing. Democrats may suffer in the next election cycle. PPACA opponents may call for more repeals in the law. Arguments are endless.

Other alternatives

Of course, because of the revenue hole, there needs to be an alternative if the employer mandate is repealed.

Jost suggested one way: to not just repeal the mandate, but replace it—by requiring employers to spend a certain percentage of their payroll on health benefits. He noted that the House passed a similar version of the employer mandate in 2009.

“The House bill required all employers to spend at least 8 percent of payroll on health benefits,” Jost wrote for Health Affairs. “Small employers were required to pay a smaller percentage of payroll, which rose as total payroll increased. Employers who spent less than the minimum paid the difference between what they actually spent and 8 percent of payroll to the federal treasury as a tax.”

The new version of the mandate, Jost said, would “dramatically” reduce the complexity of the current approach.

“Employers would only need to know two numbers: the amount of their payroll and the amount they spent on health benefits,” Jost said.

Of course, it’s not easy to simply repeal and replace.

Still, even without the employer mandate, industry insiders note, employers would need help from brokers on other areas of PPACA compliance, including market reforms and notice requirements.

And, of course, the political environment might not allow for any changes.

“There are certainly a lot of revenue sources, like a payroll tax assessment,” Blumberg says. “There are lots of options for revenue; the problem is you’re going to have political agreement to do that. But that puts us back in the place of, can we get folks to reach across the aisle and say, ‘this isn’t an essential component of this law; it’s a revenue-raising tool causing enough grief and concern among employers that we’d like to find a different revenue source.’ I think the chances are low because of the political reactions these days.”

Looking forward

Whatever the decision, industry folks want to know it — and soon.

Delaying the mandate — though praised by some — has caused more anxiety in the community, because no one knows when, or if, the requirement will really go into effect. And the mandate, whether in place or not, can have an effect on future premiums under the law.

“There’s a real fear, there’s a lack of understanding and there’s confusion — it’s a complicated law,” Blumberg says. “You take a complicated law and you layer on top of it delays and implementing pieces of it  — it creates more confusion and angst.”

Glenn Dunehew, director of health and benefits at the Barrow Group in Atlanta, agrees.

“We need to know, now, that the law is either going to be implemented or postponed,” he says. “The longer that the administration waits on starting it, the more money it costs companies and brokers.”